Sunday, July 12, 2015

A problem with India's IIP

IIP == Index of Industrial Production.

This news-item tells us: Per India's Index of Industrial Production, industrial growth is subdued (e.g., 2.7% in May).  However indirect taxes are up 37%.  There were some changes in the tax code, and if those are taken into account indirect taxes are up 14.5%. 

So there is a problem:
“There is some mismatch between Index of Industrial Production (IIP) growth and excise duty collections, even after doing away with the effect of petroleum products,” said Devendra Pant, chief economist, India Ratings. “IIP is an index with a base year. If you add consumer price inflation of about five per cent (for April-May) to it, the total effect should be an eight per cent rise in excise duty collections. However, excise duty is much more even after taking out the impact of petroleum. This means we are not measuring IIP correctly.”
Besides, experts said IIP was volume growth and didn’t give data in value terms. Therefore, one doesn’t know whether high-value production items are rising or those of low value. For instance, doubling of dispatches of Alto car models would lead to the same rise in the IIP as those of sports utility vehicles or sedans. Excise duty collections will be on the value of production and, therefore, cannot be gauged correctly from IIP.
I hope the economists work on this problem.